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Here's Why Hold Strategy is Apt for ABM Industries Stock Now
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ABM Industries Incorporated (ABM - Free Report) has had an impressive run over the past year, with shares rising 29.3%.
The company has an impressive Growth Score of A. This style score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth.
ABM has consistently demonstrated its commitment to rewarding shareholders through dividends and share buybacks. In fiscal years 2023, 2022, and 2021, the company distributed $57.5 million, $51.9 million, and $51 million in dividends, respectively. Additionally, it returned $138.1 million and $97.5 million through share repurchases in fiscal 2023 and 2022, respectively, although no shares were repurchased in 2021.
These actions reflect ABM's dedication to enhancing shareholder value and its confidence in the business's long-term potential. The company’s robust cash position supports these initiatives. Notably, in the first nine months of fiscal 2024, ABM generated $275 million in free cash flow, surpassing the $194 million generated in fiscal 2023.
ABM’s current ratio (a measure of liquidity) at the end of the third quarter was pegged at 1.38, higher than the industry’s 0.92. This strong liquidity reflects ABM’s ability to cover its immediate liabilities without strain, indicating financial stability and operational flexibility.
ABM's multi-year comprehensive strategic plan, ELEVATE, focuses on providing clients with offerings that enhance transparency and efficiencies, developing its own talent management system capabilities, expanding data usage and modernizing the digital ecosystem. ELEVATE is expected to significantly accelerate the company’s organic growth, improve its strategic and comprehensive positioning and reinforce profitability.
The 2022 acquisition of RavenVolt is a part of ABM’s ELEVATE strategy that focuses on expanding the company’s footprint in potential geographies and end markets through strategic acquisitions. RavenVolt’s addition is expanding ABM’s Technical Solutions service offerings, strengthening its foothold in EV infrastructure, power and bundled energy solutions markets. RavenVolt also boosts ABM’s eMobility business as a provider of customized power solutions in facilities that require additional power generation capacity to support EV charging.
Some Risks
ABM operates in a competitive market and encounters challenges related to customer retention, wage inflation, and labor availability. Difficulties in retaining customers could result in revenue losses. Customer retention issues could lead to revenue losses, increased marketing and sales costs to acquire new clients and potential disruptions in long-term growth. Rising wages, particularly in a labor-intensive industry like ABM's, can directly impact its operating margins.
If wage inflation accelerates faster than the company can pass on costs to its customers, profitability could suffer. This might require more efficient labor utilization, adoption of automation, or renegotiation of contracts to mitigate these financial pressures. Labor shortages pose a risk to ABM’s service delivery, potentially leading to higher turnover, lower service quality and increased recruitment costs. A competitive labor market might also force the company to offer higher wages, further intensifying cost pressures.
A significant portion of ABM’s workforce is unionized, which introduces additional complexities in labor management. If future collective bargaining negotiations do not go as planned, ABM could face strikes, increased labor costs, or operational disruptions. In such cases, there may also be reputational risks and strained relationships with key clients.
EVTC has a long-term earnings growth expectation of 8%. It delivered a trailing four-quarter earnings surprise of 11.1%, on average.
Charles River Associates flaunts a Zacks Rank of 1 at present. It has a long-term earnings growth expectation of 16%. CRAI delivered a trailing four-quarter earnings surprise of 23.5%, on average.
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ABM Industries Incorporated (ABM - Free Report) has had an impressive run over the past year, with shares rising 29.3%.
The company has an impressive Growth Score of A. This style score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth.
ABM Industries Incorporated Price
ABM Industries Incorporated price | ABM Industries Incorporated Quote
ABM’s Tailwinds
ABM has consistently demonstrated its commitment to rewarding shareholders through dividends and share buybacks. In fiscal years 2023, 2022, and 2021, the company distributed $57.5 million, $51.9 million, and $51 million in dividends, respectively. Additionally, it returned $138.1 million and $97.5 million through share repurchases in fiscal 2023 and 2022, respectively, although no shares were repurchased in 2021.
These actions reflect ABM's dedication to enhancing shareholder value and its confidence in the business's long-term potential. The company’s robust cash position supports these initiatives. Notably, in the first nine months of fiscal 2024, ABM generated $275 million in free cash flow, surpassing the $194 million generated in fiscal 2023.
ABM’s current ratio (a measure of liquidity) at the end of the third quarter was pegged at 1.38, higher than the industry’s 0.92. This strong liquidity reflects ABM’s ability to cover its immediate liabilities without strain, indicating financial stability and operational flexibility.
ABM's multi-year comprehensive strategic plan, ELEVATE, focuses on providing clients with offerings that enhance transparency and efficiencies, developing its own talent management system capabilities, expanding data usage and modernizing the digital ecosystem. ELEVATE is expected to significantly accelerate the company’s organic growth, improve its strategic and comprehensive positioning and reinforce profitability.
The 2022 acquisition of RavenVolt is a part of ABM’s ELEVATE strategy that focuses on expanding the company’s footprint in potential geographies and end markets through strategic acquisitions. RavenVolt’s addition is expanding ABM’s Technical Solutions service offerings, strengthening its foothold in EV infrastructure, power and bundled energy solutions markets. RavenVolt also boosts ABM’s eMobility business as a provider of customized power solutions in facilities that require additional power generation capacity to support EV charging.
Some Risks
ABM operates in a competitive market and encounters challenges related to customer retention, wage inflation, and labor availability. Difficulties in retaining customers could result in revenue losses. Customer retention issues could lead to revenue losses, increased marketing and sales costs to acquire new clients and potential disruptions in long-term growth. Rising wages, particularly in a labor-intensive industry like ABM's, can directly impact its operating margins.
If wage inflation accelerates faster than the company can pass on costs to its customers, profitability could suffer. This might require more efficient labor utilization, adoption of automation, or renegotiation of contracts to mitigate these financial pressures. Labor shortages pose a risk to ABM’s service delivery, potentially leading to higher turnover, lower service quality and increased recruitment costs. A competitive labor market might also force the company to offer higher wages, further intensifying cost pressures.
A significant portion of ABM’s workforce is unionized, which introduces additional complexities in labor management. If future collective bargaining negotiations do not go as planned, ABM could face strikes, increased labor costs, or operational disruptions. In such cases, there may also be reputational risks and strained relationships with key clients.
Zacks Rank & Stocks to Consider
ABM carries a Zacks Rank #3 (Hold) at present.
Some better-ranked stocks in the broader Zacks Business Services sector are Evertec (EVTC - Free Report) and Charles River Associates (CRAI - Free Report) .
Evertec sports a Zacks Rank of 1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
EVTC has a long-term earnings growth expectation of 8%. It delivered a trailing four-quarter earnings surprise of 11.1%, on average.
Charles River Associates flaunts a Zacks Rank of 1 at present. It has a long-term earnings growth expectation of 16%. CRAI delivered a trailing four-quarter earnings surprise of 23.5%, on average.